Unidirectional And Bidirectional Relationships Between Financial Parenting And Financial Self-Efficacy: Does Student Loan Status Matter?

Using longitudinal data and a cross-lagged, multigroup panel design, we examined unidirectional and bidirectional relationships between financial parenting and young adults' financial self-efficacy during the transition to adulthood. Because increasing college costs and student loan debt have changed the financial landscape of achieving higher education. we examined effects over time under 2 distinct conditions: a debt-financed college education and a debt-free college education. Analyses included the effects of 2 types of financial parenting: implicit role modeling and explicit communication. The sample was drawn from the Arizona Pathways to Life Success (APLUS) project, a cohort study of college students enrolled full time at a public university in the fall of 2007. Participants provided data at 3 time points across 5 years. The sample included 850 student loan borrowers and 800 nouborrowers. We found unidirectional patterns for both nonborrowers and borrowers depending on the type of financial parenting: Parents' explicit financial communication before college predicted higher levels of financial self-efficacy during freshman year for nonborrowers, whereas parents' implicit modeling before college predicted higher levels of financial self-efficacy during freshman year for borrowers. Financial self-efficacy led to less frequent explicit parental financial communication for nonborrowers after college but was associated with more frequent explicit parental financial communication during college for borrowers. Our findings suggest that explicit communication regarding basic finance principles is likely sufficient to support financial self-efficacy in a debt-free context, whereas observing parents' responsible financial behaviors may be beneficial for young adults who incur student loan debt.